PROPERTY TITIJAYA LAND

(TTJ MK EQUITY, TITI.KL) 14 Aug 2017

Forging ahead on solid footing Company report BUY

Azman Hussin Initiation [email protected] 03-2036 2025 Rationale for report: Initiation

Price RM1.54 Investment Highlights Fair Value RM2.01 52-week High/Low RM1.93/RM1.45  We initiate our coverage on Titijaya Land Bhd (Titijaya) Key Changes with a BUY recommendation and a fair value of RM2.01, Fair value  based on a 30% discount to its RNAV. EPS   Titijaya was founded in 1997 by Tan Sri Lim Soon Peng. YE to Jun FY16 FY17F FY18F FY19F Its early projects included double-storey terrace houses

and three-storey shop offices in Taman Bukit Cheras, Revenue (RM mil) 400.1 283.6 333.7 376.6 Core net profit (RM mil) 68.4 68.1 80.1 90.4 Kuala Lumpur and double-storey terrace houses, FD Core EPS (sen) 18.3 17.3 18.8 27.8 residential lots and low-cost apartments in . FD Core EPS growth (%) (15.6) (5.6) 8.5 47.9 Consensus Net Profit (RM mil) - 72.0 76.9 117.0  Titijaya launched its first high-rise development project, DPS (sen) 4.5 0.4 1.0 1.0 E-Tiara Serviced Apartments in , in 2004. PE (x) 8.4 8.9 8.2 5.5 Subsequently in 2007, Titijaya embarked on its first mixed EV/EBITDA (x) 7.9 7.2 5.4 4.1 commercial development of office suites and retail lots, Div yield (%) 2.9 0.3 0.6 0.6 ROE (%) 13.6 12.1 12.7 12.7 First Subang, in SS15 Subang Jaya. This was followed by Net Gearing (%) 20.9 7.5 nm nm Subang Parkhomes (Phase 1), its first low-rise and low- density condominiums located in Subang Jaya in 2009. In

Stock and Financial Data 2013, Titijaya was listed on the Main Market of Bursa . Shares Outstanding (million) 410.0 Market Cap (RMmil) 631.4  Currently, its ongoing projects include H2O @ Ara Book Value (RM/share) 1.47 Damansara (mixed development), Emery @ Kemensah P/BV (x) 1.0 (high-end landed residential) in Ampang, Mutiara ROE (%) 13.6 Residences in Klang (landed residential) and Seri Alam Net Gearing (%) 20.9 Residence in Klang (landed residential). Major Shareholders Titijaya Group Bhd (59.1%) AIA Bhd (7.8%)  Titijaya is launching new developments with RM1.82bil Lembaga Tabung haji (4.3%) GDV in FY18. These comprise 5 new projects, namely The Free Float 25.9 Shore @ Kota Kinabalu (mixed development), 3rdNvenue Avg Daily Value (RMmil) 1.2 @ Jalan Ampang (mixed development), Riveria KL Sentral (mixed development), Damansara West, Price performance 3mth 6mth 12mth (township), and Park Residensi @ Cheras (landed

residential). Absolute (%) (6.1) (8.9) (1.9) Relative (%) (6.7) (13.5) (7.8)  Titijaya’s revenue growth has been strong, with a FY13- FY16 3-year CAGR of 29.0%. Although we expect revenue 3.0 2,000 growth to be negative in FY17 consistent with the 1,800 challenging industry condition, we expect a rebound from 2.5 1,600 FY18 onwards, supported by a slew of new launches in 1,400 2.0 FY18 and beyond. 1,200 1.5 1,000  Its earnings growth has also been commendable, with its 800 FY13-FY16 3-year net profit CAGR standing at 7.1%, 1.0 600 despite its net profit margin dropping to 17.1% in FY16 400 compared to 23.8% in FY15, which we believe was due to 0.5 the challenging industry environment. Moving forward, 200 we expect Titijaya’s earnings to return to positive growth

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14 16 17 15

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13 from FY18 onwards, supported by the upcoming

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launches of new projects and improving market

Feb Feb Feb Feb

Nov Aug Nov Aug Nov Aug Nov

May May May May conditions, which should result in its profitability level to TTJ MK FBMKLCI Index normalise to its historical level.

 Titijaya Land 14 Aug 2017

BACKGROUND Seri Alam Residence

 History This is a landed residential development project located in Klang, with an estimated total GDV of Titijaya’s history began in 1997 when it was founded by its RM102.1mil. It consists of cluster and semi-detached group managing director Tan Sri Lim Soon Peng. The early houses, with selling prices between RM600K and RM750K projects of Titijaya include double-storey terrace houses each. The development is expected to be completed in and three-storey shop offices in Taman Bukit Cheras, 2018. Kuala Lumpur and double-storey terrace houses, residential lots and low-cost apartments in Klang. OUTLOOK

In 2004 Titijaya launched its first high-rise development  RM1.82bil GDV of new launches in FY18 project, E-Tiara Serviced Apartments in Subang Jaya and also shop offices known as Commercial Titijaya’s outlook over the near term is positive, supported Centre in Klang. The following year saw the launch of its by its upcoming launches in FY18. It has lined up new second high-rise project, Casa Tiara Serviced Suites, also launches totalling RM1.82bil in GDV as follows: located in Subang Jaya. In the same year, its Tiara Square Business Centre, a project in UEP Subang Jaya, was also The Shore @ Kota Kinabalu, Sabah launched. A mixed development project on 1.8 acres of land Subsequently, in 2007, Titijaya rolled out its first mixed strategically located within Kota Kinabalu’s central commercial development of office suites and retail lots, business district, Sabah, it has an estimated GDV of named First Subang, in SS15 Subang Jaya. This was RM575mil. The prices for the units range between RM455K followed by another project in Subang Jaya, named One and RM810K, with sizes from 409 to 729 sq ft. The entire SOHO, in 2008. development is expected to be completed by 2022.

In 2009, Titijaya launched Subang Parkhomes (Phase 1), This is Titijaya’s second collaboration with CREC after its first low-rise and low-density condominiums located in 3rdNVenue. Subang Jaya. Among the projects it has completed include Subang Parkhomes (Phase 2) in Subang Jaya, Seri Alam 3rdNvenue @ Jalan Ampang Industrial Park in Klang, Zone Innovation Park in Klang, Galleria in Klang, and 3Elements in , This is an integrated mixed development consisting of office suites, serviced apartments and retail lots. It is In 2013, Titijaya was listed on the Main Market of Bursa located at a prime location along the Embassy Row in Malaysia. Jalan Ampang, at the heart of Kuala Lumpur, 5 minutes’ drive from Kuala Lumpur City Centre. It also has good  Ongoing projects accessibility, being the only development with direct access to AKLEH in Jalan Ampang, with the nearest LRT station Titijaya has several ongoing property development projects just 600 metres away. in Malaysia, which are listed below: With a land size of 6.06 acres, this development has an H2O @ Ara Damansara estimated total GDV of RM1.8bil, with the units priced between RM450K and RM1mil. The project is expected to This is a mixed development located in Ara Damansara, be completed by 2024. with a total estimated GDV of RM794mil. It consists of 4 residential towers made up of serviced apartments and This development marks a major milestone for Titijaya, SoHo suits. The whole development is expected to be being its first collaboration with China’s CREC, one of the completed in 2019. largest global EPCC players. The project has an in-kind payment contractor financing structure, where 40% of sales Emery @ Kemensah are secured through in-kind payment to contractor. This would minimise market demand risk, while freeing up its This is a high-end residential development consisting of cash flow and reduce upfront capital requirements. This landed properties located in Kemensah, Ampang, would also lead to an improved cost management, lower Selangor. It has an estimated total GDV of RM50.7mil. This execution risk and timely delivery. project is expected to be completed by end-2017.

Mutiara Residence

Located in Klang, Selangor with a total GDV of RM30.3mil, this project comprises 2.5-storey link houses, priced between RM680K and RM890K each. The development is scheduled to be completed by end-2017.

AmInvestment Bank Bhd 2 Titijaya Land 14 Aug 2017

EXHIBIT 1: ONGOING PROJECTS Projects launched Type Est. GDV (RM mil) Take-up rate (%) Progress Completion

Mutiara Residence 2.5 -storey (20’ x75’) 30.3 100.0% 80.0% 2017 2.5-storey (20’ x 65’) 80.0%

H2O Block A Serviced apartments 794.0 99.2% 46.2% 2019 H2O Block B Serviced apartments Newly launched (April 2017) H2O Block C SoHo Suits 81.0% H2O Block D 59.6%

Seri Alam Residences Phase 1: Cluster houses 102.1 100.0% 52.6% 2018 Phase 2A: Semi-D houses 0.3% 23.1%

Others 50.7

Total 977.1

Source: Company, AmInvestment Bank Bhd

Riveria KL Sentral Trio Monfort @ Glenmarie

Strategically located in KL Sentral, this transit-oriented An integrated mixed development project located in development consists of retail, SOHO units and serviced Glenmarie, , it has an estimated GDV of apartments. Developed on a land size measuring 4.61 RM1.5bil. acres, the project has an estimated total GDV of RM1.0bil. The prices for the units will range between RM336K and Batu Maung, Penang RM780K, with built-ups from 255 to 990 sq ft. The development is expected to be completed by 2023. A mixed development project located at the waterfront of Batu Maung, Penang featuring condominiums, serviced Damansara West, Bukit Subang apartments, office lots and retail spaces. The estimated total GDV of the project is RM2.52bil. This is a township residential development project located in Bukit Subang, Selangor. The total land size for the Klang Sentral Serviced Apartments development is 46.2 acres, with an estimated total GDV of RM2.4bil. The units will be priced between RM300K and Comprising serviced apartments, it is located within the RM450K, with the unit sizes ranging from 750 to 1,000 sq Klang Sentral transport hub, within walking distance of the ft. The development is expected to be completed by 2027. Klang Sentral bus and taxi terminal. The estimated total GDV of the development is RM700mil. Park Residensi @ Cheras RISKS Located in Alam Damai, Cheras with a total GDV of RM75mil, this is a residential development consisting of 68  Longer-than-expected slowdown in property market units of 3-storey link houses. The development is scheduled to be launched in 3QCY17. There is a risk that Titijaya’s new property sales could be affected if the challenging market condition persists longer  More projects planned beyond FY18 than expected. This could lead to lower property sales of the group and decline in future earnings. Beyond FY18, Titijaya has lined up a slew of potential developments that will ensure its earnings sustainability  Increased competition in affordable segment over the long run. However, there is no specific launch date yet for these projects. As such, we expect these projects to Due to the slowdown in the property market, the majority of be launched only from 2020 onwards. Among the projects property developers in the country have shifted their focus are listed below: to the affordable segment, which has historically been the core segment for Titijaya. There is a risk that Titijaya’s Odeon @ Jalan Tuanku Abdul Rahman, KL future performance might be impacted by the increased competition within its key market segment. This is a transport-oriented development located in Jalan Tuanku Abdul Rahman, Kuala Lumpur consisting of serviced apartments and retail units. The development is planned for 2 towers of serviced apartments and a number of retail units, with an estimated total GDV of RM1.5bil.

AmInvestment Bank Bhd 3 Titijaya Land 14 Aug 2017

EXHIBIT 2: UPCOMING PROJECTS Projects Type Est. GDV (RM mil) Commencement Completion date

Klang Sentral Serviced Apartment Serviced apartment 700.0 TBA TBA

Seri Alam Residence Phase 2B – Single-storey 237.9 2018 2019 Phase 3 – Semi-detached Phase 4 – Semi-detached

3rdNvenue Office suites 1,800.0 2017 2024 Serviced apartment Retail

Riveria Office suites 1,000.0 2017 2023 Serviced apartment 1 Serviced apartment 2 Shop lots

The Shore @ Kota Kinabalu Retail 575.0 2017 2022 Serviced residences Hotel

Odeon Retail 1,500.0 TBA TBA Serviced apartment - Block 1 Serviced apartment - Block 2

Batu Maung, Penang Condominium 2,520.0 TBA TBA SoHo Commercial

Trio Monfort, Glenmarie Mixed development 1,500.0 TBA TBA

Damansara West Serviced apartment 2,400.0 2017 2027 Strata shop Program Perumahan Rakyat Serviced apartment

Others 75.3

Total 12,308.2

Source: AmInvestment Bank Bhd, Company

 Scarcity of land in good locations Although we expect revenue growth to be negative in FY17 consistent with the challenging industry condition, we As a property developer, Titijaya needs to continuously expect a rebound from FY18 onwards, supported by a slew replenish its landbank to ensure sustainability in its of new launches in FY18 and beyond. revenue and earnings moving forward. Competition among local property developers for land in good locations poses tough challenges to Titijaya in acquiring landbank at favourable locations.

FINANCIALS

 Strong revenue growth

Titijaya has recorded strong revenue growth from FY13- FY16, with a 3-year compounded annual growth rate (CAGR) of 29.0% to RM400.1mil in FY16. This was attributed to good take-up rates and consistent progress at its development projects.

AmInvestment Bank Bhd 4 Titijaya Land 14 Aug 2017

EXHIBIT 3: REVENUE GROWTH  Healthy balance sheet Titijaya’s gearing level has been kept at comfortable levels 400.1 historically, and we expect this prudent approach to be 376.6 maintained in the future. Its debt-to-equity level has stayed 340.7 333.7 below 0.4x since FY13 until FY16.

283.8 283.6 EXHIBIT 5: DEBT-TO-EQUITY LEVEL 0.450

186.2 0.400

0.350

0.300

0.250

0.200 FY13 FY14 FY15 FY16 FY17F FY18F FY19F 0.150 Source: Company, AmInvestment Bank Bhd 0.100

 Commendable earnings growth 0.050

Consistent with revenue growth, Titijaya has sustained 0.000 commendable earnings growth, with its FY13-FY16 3-year FY13 FY14 FY15 FY16 FY17F FY18F FY19F net profit CAGR standing at 7.1%. This was despite its net profit margin dropping to 17.1% in FY16 compared to Source: Company, AmInvestment Bank Bhd 23.8% in FY15, which we believe was due to the challenging environment forcing Titijaya to sacrifice its  Sustained profitability margins in its property sales. Over the years, Titijaya has managed to sustain its Moving forward, we expect Titijaya’s earnings to return to profitability at commendable levels. Its net profit margin positive growth from FY18 onwards, supported by the ranged between 23% and 30% in FY13-FY15. This level upcoming launches of new projects in FY18 and the dropped to 17.1% in FY16, which we believe was due to improving market environment. challenging market conditions with Titijaya having to lower its selling prices and sacrifice its profitability in order to EXHIBIT 4: NET PROFIT sustain sales performance. However, we expect the profitability level to normalise from FY17F onwards, due to the improving market environment. 90.4 80.9 80.1 EXHIBIT 6: NET PROFIT MARGIN 71.3 68.4 68.1 35.0%

55.6 30.0%

25.0%

20.0%

15.0%

10.0%

FY13 FY14 FY15 FY16 FY17F FY18F FY19F 5.0% Source: Company, AmInvestment Bank Bhd 0.0% FY13 FY14 FY15 FY16 FY17F FY18F FY19F

Source: Company, AmInvestment Bank Bhd

AmInvestment Bank Bhd 5 Titijaya Land 14 Aug 2017

 Rights issue to boost war chest

Titijaya has proposed a rights issue of irredeemable convertible preference shares (ICPS) of up to 615.0mil ICPS on the basis of 3 ICPS for every 2 existing TLB shares held by shareholders. The indicative issue price of the ICPS is RM0.165 each. The conversion ratio of the ICPS is either 10 ICPS into 1 new Titijaya share or a combination of 1 ICPS and cash payment of RM1.485 for 1 new Titijaya share. The ICPS can be converted within 5 years from the date of issuance of the ICPS.

We expect the rights issue of ICPS to be positive to Titijaya over the long term. Assuming it is fully subscribed, the ICPS is expected to raise RM101.5mil for the group, with 70% of the proceeds to be utilised for the property development expenditure with the rest being utilised to pare down its bank borrowings.

RECOMMENDATION AND VALUATION

 Initiate coverage with a BUY recommendation

We initiate our coverage on Titijaya with a BUY call and a fair value of RM2.01 per share, based on a 30% discount to its revalued net asset value (RNAV), consistent with the valuation of other property stocks on our radar. We believe Titijaya’s share price still has a substantial upside, driven by its expected earnings growth in the foreseeable future.

AmInvestment Bank Bhd 6 Titijaya Land 14 Aug 2017

EXHIBIT 7: RNAV NPV at 8.3% Projects Value (RM m) Stake (%) Mutiara Residence 4.5 100% Seri Alam Residences 64.4 100% Embun & Emery @ Kemensah 9.2 100% H2O Ara Damansara 127.7 100% 3rdNvenue @ Jalan Ampang 188.9 70% The Shore @ Kota Kinabalu 94.1 100% Park Residensi @ Cheras 13.7 100% Riveria KL Sentral 111.0 70% Damansara West, Bukit Subang 334.4 100% Total NPV 948.0

Shareholders ’ equity as at end-FY16 531.3 Proceeds from ICPS (maximum scenario) 101.5

RNAV (RM mil) 1,580.7

Total no of outstanding shares 410.0 Additional no of shares from ICPS conversion (maximum scenario, 10 into 1) 61.5 Consideration shares for NPO Builders acquisition 79.7 FD total no of shares 551.2

RNAV per share (RM) 2.87

30% discount attached 0.86

Fair value (RM) 2.01

Source: AmInvestment Bank Bhd, Company

EXHIBIT 8: COST OF EQUITY RFR 4.0% Beta 0.72 Market risk premium 6.0% Ke 8.3%

Source: Company, AmInvestment Bank Bhd

AmInvestment Bank Bhd 7 Titijaya Land 14 Aug 2017

EXHIBIT 9: PB BAND CHART EXHIBIT 10: PE BAND CHART

2.50 14.00

12.00 2.00 +1δ 10.00 +1δ Avg 1.50 8.00 -1δ Avg

6.00 1.00 -1δ

4.00 0.50 2.00

0.00 0.00

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AmInvestment Bank Bhd 8 Titijaya Land 14 Aug 2017

EXHIBIT 11: FINANCIAL DATA

Income Statement (RMmil, YE 30 Jun) FY15 FY16 FY17F FY18F FY19F

Revenue 340.7 400.1 283.6 333.7 376.6 EBITDA 112.5 93.9 94.1 110.1 123.9 Depreciation/Amortisation (0.6) (0.6) (1.2) (1.2) (1.2) Operating income (EBIT) 111.8 93.3 92.9 108.9 122.7 Other income & associates - - - - - Net interest (0.8) (1.9) (2.1) (2.1) (2.1) Exceptional items - - - - - Pretax profit 111.1 91.4 90.8 106.8 120.5 Taxation (30.3) (23.1) (22.7) (26.7) (30.1) Minorities/pref dividends 0.2 0.1 - - - Net profit 80.9 68.4 68.1 80.1 90.4 Core net profit 80.9 68.4 68.1 80.1 90.4

Balance Sheet (RMmil, YE 30 Jun) FY15 FY16 FY17F FY18F FY19F

Fixed assets 4.5 11.3 11.1 10.8 10.6 Intangible assets 3.7 3.7 3.7 3.7 3.7 Other long-term assets 211.5 263.8 263.8 263.8 263.8 Total non-current assets 219.7 278.8 278.6 278.3 278.1 Cash & equivalent 189.3 94.9 161.4 237.7 324.1 Stock 23.4 21.0 21.0 21.0 21.0 Trade debtors 217.7 213.4 213.4 213.4 213.4 Other current assets 406.8 484.2 481.7 481.7 481.7 Total current assets 837.2 813.5 877.5 953.7 1,040.2 Trade creditors 163.2 194.7 194.7 194.7 194.7 Short-term borrowings 54.7 104.7 104.7 104.7 104.7 Other current liabilities 200.4 109.5 109.5 109.5 109.5 Total current liabilities 418.3 408.9 408.9 408.9 408.9 Long-term borrowings 103.8 101.1 101.1 101.1 101.1 Other long-term liabilities 59.4 51.1 51.1 51.1 51.1 Total long-term liabilities 163.1 152.2 152.2 152.2 152.2 Shareholders’ funds 474.9 530.8 594.5 670.5 756.8 Minority interests 0.6 0.5 0.5 0.5 0.5 BV/share (RM) 1.34 1.47 1.45 1.64 1.85

Cash Flow (RMmil, YE 30 Jun) FY15 FY16 FY17F FY18F FY19F

Pretax profit 111.1 91.4 90.8 106.8 120.5 Depreciation/Amortisation 0.6 0.6 1.2 1.2 1.2 Net change in working capital 78.7 (138.3) - - - Others (30.6) (20.0) (22.7) (26.7) (30.1) Cash flow from operations 159.9 (66.4) 69.3 81.3 91.6 Capital expenditure (0.4) (7.3) (1.0) (1.0) (1.0) Net investments & sale of fixed assets (3.3) 2.3 - - - Others (25.2) (45.6) - - - Cash flow from investing (28.9) (50.5) (1.0) (1.0) (1.0) Debt raised/(repaid) (35.0) 22.1 - - - Equity raised/(repaid) 0.9 - - - - Dividends paid (14.1) (16.1) (1.8) (4.1) (4.1) Others (47.2) 8.0 - - - Cash flow from financing (95.4) 9.3 (1.8) (4.1) (4.1) Net cash flow 35.6 (107.6) 66.5 76.2 86.5 Net cash/(debt) b/f 133.0 168.5 60.9 127.5 203.7 Net cash/(debt) c/f 168.5 60.9 127.5 203.7 290.1

Key Ratios (YE 30 Jun) FY15 FY16 FY17F FY18F FY19F

Revenue growth (%) 20.0 17.4 (29.1) 17.7 12.9 EBITDA growth (%) 14.4 (16.5) 0.3 17.0 12.4 Pretax margin (%) 32.6 22.8 32.0 32.0 32.0 Net profit margin (%) 23.8 17.1 24.0 24.0 24.0 Interest cover (x) 146.5 49.2 43.4 50.9 57.3 Effective tax rate (%) 27.3 25.3 25.0 25.0 25.0 Dividend payout (%) 17.5 23.6 2.6 5.1 4.5 Debtors turnover (days) 233 195 275 233 207 Stock turnover (days) 45 30 32 28 18 Creditors turnover (days) 316 277 293 264 163

Source: Company, AmInvestment Bank Bhd estimates

AmInvestment Bank Bhd 9 Titijaya Land 14 Aug 2017

DISCLOSURE AND DISCLAIMER

This report is prepared for information purposes only and it is issued by AmInvestment Bank Berhad (“AmInvestment”) without regard to your individual financial circumstances and objectives. Nothing in this report shall constitute an offer to sell, warranty, representation, recommendation, legal, accounting or tax advice, solicitation or expression of views to influence any one to buy or sell any real estate, securities, stocks, foreign exchange, futures or investment products. AmInvestment recommends that you evaluate a particular investment or strategy based on your individual circumstances and objectives and/or seek financial, legal or other advice on the appropriateness of the particular investment or strategy. The information in this report was obtained or derived from sources that AmInvestment believes are reliable and correct at the time of issue. While all reasonable care has been taken to ensure that the stated facts are accurate and views are fair and reasonable, AmInvestment has not independently verified the information and does not warrant or represent that they are accurate, adequate, complete or up-to-date and they should not be relied upon as such. All information included in this report constitute AmInvestment’s views as of this date and are subject to change without notice. Notwithstanding that, AmInvestment has no obligation to update its opinion or information in this report. Facts and views presented in this report may not reflect the views of or information known to other business units of AmInvestment’s affiliates and/or related corporations (collectively, “AmBank Group”). This report is prepared for the clients of AmBank Group and it cannot be altered, copied, reproduced, distributed or republished for any purpose without AmInvestment’s prior written consent. AmInvestment, AmBank Group and its respective directors, officers, employees and agents (“Relevant Person”) accept no liability whatsoever for any direct, indirect or consequential losses, loss of profits and/or damages arising from the use or reliance of this report and/or further communications given in relation to this report. Any such responsibility is hereby expressly disclaimed. AmInvestment is not acting as your advisor and does not owe you any fiduciary duties in connection with this report. The Relevant Person may provide services to any company and affiliates of such companies in or related to the securities or products and/or may trade or otherwise effect transactions for their own account or the accounts of their customers which may give rise to real or potential conflicts of interest. This report is not directed to or intended for distribution or publication outside Malaysia. If you are outside Malaysia, you should have regard to the laws of the jurisdiction in which you are located. If any provision of this disclosure and disclaimer is held to be invalid in whole or in part, such provision will be deemed not to form part of this disclosure and disclaimer. The validity and enforceability of the remainder of this disclosure and disclaimer will not be affected.

AmInvestment Bank Bhd 10